To amend title I of the Employee Retirement Income
Security Act of 1974 to provide special reporting and disclosure rules for
individual account plans and to provide a minimum investment option requirement
for such plans.

1.

Short title

This Act may be cited as the
401(k) Fair Disclosure for Retirement
Security Act of 2009.

2.

Special reporting
and disclosure rules for individual account plans

(a)

Additional
reporting and disclosure rules

Part 1 of subtitle B of title I of
the Employee Retirement Income Security Act of 1974 is amended—

(1)

by redesignating
section 111 (29 U.S.C. 1031) as section 112; and

(2)

by inserting after
section 110 (29 U.S.C. 1030) the following new section:

The plan
administrator of an individual account plan (or any other plan official with
contracting authority under the terms of the plan) and any other person may not
enter into a contract for services to the plan (including, for purposes of this
section, the offering of any investment option to the plan) unless such plan
administrator or other official has received, not less than 10 business days in
advance of entering into the contract, a single written statement from such
person which—

(A)

describes such
services for the plan that will be provided in connection with the contract,
and

(B)

provides the
expected total annual charges for such services for the plan that will be
provided in connection with the contract, including a reasonable allocation of
such total annual charges among all relevant component charges specified in
paragraph (2) (regardless of how the charges are actually assessed).

The
description of the services and the charges for the services shall be displayed
prominently in the written statement and shall be presented in a format which
is understandable to the typical plan administrator.(2)

Minimum
allocation requirements

The allocation required under paragraph
(1)(B) in connection with the services provided under each contract shall
specify component charges (to the extent such services for the plan are
provided under the contract) as follows:

(A)

charges for
administration and recordkeeping,

(B)

transaction-based
charges,

(C)

charges for
investment management, and

(D)

all such charges
not described in subparagraph (A), (B), or (C) as may be specified by the
Secretary.

(3)

Presentation of
charges

The total charges
described in paragraph (2)(A) and the total charges described in paragraph
(2)(C) shall each be presented in the written statement as an aggregate total
dollar amount, and, in addition, each of such total charges may also be
presented as a percentage of assets. The charges described in paragraph (2)(B)
shall be itemized separately as dollar amounts or as percentages of the
applicable base amounts.

(4)

Estimations

For purposes of providing the statement
required under this subsection in connection with any service, the service
provider may provide a reasonable and representative estimate of the charges
required to be disclosed under paragraph (1)(B) and shall indicate any such
estimate as being such an estimate. Any such estimate shall be based on the
previous year’s experience of the plan or, in the case of a new plan, the
previous year’s experience of a comparable plan with participants and
beneficiaries of similar demographics.

(5)

Reliance

To
the extent any of the information required to be disclosed by a service
provider under this subsection is given to the service provider by an
unaffiliated person which is regulated by the Federal Government or a State,
the service provider may rely on the completeness and accuracy of such
information unless the service provider—

(A)

knows that the
information is inaccurate or incomplete,

(B)

has reason to know
that the information is inaccurate or incomplete, or

(C)

has notice of
facts or information that would prompt a reasonable service provider to inquire
into the accuracy or completeness of the information.

(6)

Disclosure of
financial relationships

(A)

In
general

The statement required under paragraph (1) shall include
a written disclosure of—

(i)

any payment
provided (or the amount representing the value of any services provided) to the
service provider (or any affiliate thereof) pursuant to, or in connection with,
the contract described in paragraph (1) and the amount and type of any payment
made or credit received for such services (irrespective of whether the service
provider (or affiliate thereof) or other person providing such services is
affiliated or unaffiliated with the plan, the plan sponsor, the plan
administrator, or any other plan official),

(ii)

any personal, business, or financial
relationship with the plan sponsor, the plan, or the service provider (or any
affiliate of the service provider) or any totality of such relationships which
is material, if such relationship results in the service provider (or any
affiliate thereof) deriving any material benefit, and

(iii)

such other
similar arrangements benefitting the service provider (or any affiliate
thereof) as may be specified by the Secretary.

(B)

Inclusions

(i)

In
general

Disclosures described under subparagraph (A)(ii) shall
include the extent to which the service provider (or any affiliate thereof) may
benefit from the offering of its own proprietary investment products or those
of third parties.

(ii)

Applicable
prohibited transaction exemption

Disclosures under this paragraph
may include a description of any applicable prohibited transaction exemption
under section 408 related to the services described in the statement required
under paragraph (1).

(7)

Disclosure of
impact of share classes

The statement required under paragraph
(1) shall, to the extent applicable, disclose that the share prices of certain
mutual fund investments that are available to the plan may be different from
the share prices outside of the plan due to the existence of different share
classes and provide the basis for these differences.

(8)

Disclosure of
certain arrangements in connection with free or discounted services or
reimbursements by service providers

In any case in which services
are provided to the plan, or to the plan sponsor in connection with the plan,
by any service provider without explicit charge or for charges set at a
discounted rate or subject to rebate, the statement required under paragraph
(1) shall specify the manner in which, the extent to which, and the amount by
which consideration is otherwise obtained by the service provider (or any
affiliate thereof), the plan, or the plan sponsor for such services, directly
or indirectly, by means of any charges against the account of the participant
or beneficiary.

(9)

Model
statement

The Secretary shall prescribe a model statement that
may be used for purposes of satisfying the requirements of this
subsection.

(10)

Updating

Each
contract described in paragraph (1) shall require that the service provider
must provide to the plan administrator an updated written statement described
in paragraph (1) describing any material change in the information included in
the statement provided pursuant to paragraph (1) as soon as is reasonable after
the occurrence of the change is known. The contract shall provide that such an
updated written statement, or, in the case of a plan year in which no material
change in the information included in the statement provided pursuant to
paragraph (1) has occurred, a written statement setting forth such fact, must
be provided not less often than annually.

(11)

Limitations

(A)

Dollar
limitation

(i)

In
general

The requirements of this subsection shall apply with
respect to any contract for services provided during any plan year only if the
total charged for such services under such contract (regardless of whether, in
connection with such services under such contract, such charges are received by
the service provider (or any affiliate thereof) directly or are received by the
service provider (or any affiliate thereof) indirectly from other affiliated or
unaffiliated parties) equals or exceeds $5,000.

(ii)

Cost of living
adjustment

(I)

In
general

In the case of any
plan year beginning during a calendar year beginning after 2010, the dollar
amount in clause (i) shall be increased by an amount equal to such dollar
amount, multiplied by the percentage (if any) by which the average of the
Consumer Price Index for all urban consumers (United States city average) for
the 12-month period ending with September of the preceding calendar year
exceeds such average for the 12-month period ending with September 2009.

(II)

Rounding

If any dollar amount after being increased
under subclause (I) is not a multiple of $500, such dollar amount shall be
rounded to the next lower multiple of $500.

(iii)

Adjustments by
the Secretary

The Secretary
may by regulation adjust the dollar amount specified in this subparagraph to a
lesser amount for small plans and to a greater amount for other plans and
provide for appropriate annual adjustments in such adjusted amounts at the same
rate as would apply under clause (ii).

(B)

General
applicability of requirements with respect to services

Nothing in this subsection shall be
construed to require any service provider to provide any service with respect
to any particular plan sponsor.

(12)

Coordination
with fiduciary rules

Nothing
in this subsection affects the obligations of plan sponsors and fiduciaries
under part 4 of this subtitle.

(b)

Disclosures to
participants and beneficiaries

(1)

Advance notice
of available investment options

The plan administrator of an
individual account plan which permits a participant or beneficiary to exercise
control over the assets in the account of the participant or beneficiary shall
provide to the participant or beneficiary with respect to each plan year notice
of the investment options available for election under the plan at least 10
business days prior to—

(A)

the earliest date
provided for under the plan for the participant’s initial investment of any
contribution made on behalf of such participant, and

(B)

the effective date
of any material change in investment options.

In the
case of a plan that provides for immediate eligibility or that contains an
automatic contribution arrangement (as defined in subparagraphs (A) and (B) of
section 514(e)(2)), the notice required under subparagraph (A) may be provided
within any reasonable period prior to such initial investment. With respect to
the notice required under this paragraph, the Secretary shall prescribe
regulations creating exceptions to the 10-day notice requirement in
circumstances similar to those described in section 101(i)(2)(C), and such
notice may be combined with any similar notice that may be required under
section 404(c)(5) or under this section.(2)

Information
included in notice

The notice
required under paragraph (1) shall—

(A)

include a prominent statement, in language
presented in a manner which is easily understandable by the typical
participant, indicating which components of the charges (both direct and
indirect) for each investment option are payable by the participant or
beneficiary and how such components are to be paid,

(B)

set forth, with
respect to each available investment option—

(i)

the name of the
option,

(ii)

the investment
objectives and principal investment strategies of the option,

(iii)

the risk level
associated with the option,

(iv)

whether the
option is diversified among various classes of assets so as to minimize the
risk of large losses or should be combined with other options so as to obtain
such diversification,

(v)

whether the
investment option is actively managed or passively managed in relation to an
index and the difference between active management and passive
management,

(vi)

where, and the
manner in which, additional plan-specific, option-specific, and generally
available investment information regarding the option may be obtained,
and

(vii)

a statement
explaining that investment options should not be evaluated solely on the basis
of the charges for each option but should also be based on careful
consideration of other key factors, including the risk level of the option, the
investment objectives of the option, the principal investment strategies of the
option, and historical returns derived by the option, and

(C)

include a plan fee
comparison chart, relating to the charges described in paragraph (3) in
connection with all investment options available under the plan, as provided in
paragraph (3).

(3)

Plan fee
comparison chart

(A)

In
general

(i)

In
general

The notice provided under this subsection shall include a
plan fee comparison chart consisting of a comparison of actual service and
investment charges (including, for purposes of this clause, charges for the
offering of an investment option) that will or could be assessed against the
account of the participant or beneficiary with respect to the plan year. The
plan fee comparison chart shall be presented in a manner which is easily
understood by the typical participant and include such information as the
Secretary determines necessary to permit participants and beneficiaries to
assess the services for which charges will or could be assessed against the
account.

(ii)

Form

For
purposes of this paragraph, the potential service charges shall be provided in
the form of a dollar amount and may also be provided, in addition, as a
percentage of assets. The form of the potential service charges shall be
presented in a manner which is easily understandable by the typical
participant, including examples that demonstrate how the charges will be
assessed against the account of the participant or beneficiary.

(B)

Categorization
of charges

The plan fee comparison chart shall provide
information in relation to 4 categories of charges that will or could be
assessed against the account of the participant or beneficiary, as
follows:

(i)

Asset-based
charges specific to investment

Charges that vary depending on the
investment options selected by the participant or beneficiary, including
expense ratios and investment-specific asset-based charges. The information
relating to such charges shall include a statement noting any charges for 1 or
more investment options which pay for services other than investment
management.

(ii)

Asset-based
charges not specific to investment

Charges that are assessed as a
percentage of the total assets in the account of the participant or
beneficiary, regardless of the investment option selected.

(iii)

Administrative
and transaction-based charges

Administration and
transaction-based charges, including fees charged to participants to cover plan
administration, compliance, and recordkeeping costs, plan loan origination
fees, possible redemption fees, and possible surrender charges, that are not
assessed as a percentage of the total assets in the account and are either
automatically deducted each year or result from certain transactions engaged in
by the participant or beneficiary.

(iv)

Other
charges

Any other charges which may be deducted from
participants' or beneficiaries' accounts and which are not described in clauses
(i), (ii), and (iii).

(C)

Description of
purpose for charges

The notice shall indicate the extent to which
each charge is for investment management, transactions, plan administration and
recordkeeping, or other identified services.

(D)

Fees and
historical returns

In
connection with each investment option listed in the plan fee comparison chart,
the chart shall include the amounts of the fees assessed in connection with
such option and a history of the returns derived net of fees and expenses. Any
such history shall be for the previous year, 5 years, and 10 years (or since
inception if later).

(4)

Model
notice

The Secretary shall prescribe a model notice that may be
used for purposes of satisfying the requirements of this subsection, including
a model plan fee comparison chart.

(5)

Estimations

For purposes of providing the notice
required under this subsection, the plan administrator may provide a reasonable
and representative estimate for any charges or percentages disclosed under
paragraph (2) or (3) and shall indicate any such estimate as being such an
estimate. Any such estimate shall be based on the previous year’s experience
or, in the case of a new plan, the previous year’s experience of a comparable
plan with participants and beneficiaries of similar demographics.

(c)

Electronic
media

Any disclosure required
under this section may be provided through an electronic medium under rules
prescribed by the Secretary. Such rules shall be similar to those applicable
under the Internal Revenue Code of 1986 with respect to notices to participants
in pension plans. The Secretary shall have the authority to modify such rules
as appropriate to take into account new developments, including new forms of
electronic media. The rules prescribed by the Secretary pursuant to this
subsection shall provide for a method for the typical participant or
beneficiary to obtain without undue burden any such disclosure in writing on
paper in lieu of receipt through an electronic medium.

(d)

Regulations
regarding certain products

The Secretary shall prescribe
regulations identifying (and establishing separate rules, if necessary, to
identify) any investment options that provide a guaranteed rate of return and
that do not identify specific fees.

(e)

Definitions

For
purposes of this section—

(1)

Charge

The
term charge means, in connection with any service provided to a
plan or any financial product provided to the plan in which plan assets are to
be invested, any fee, credit, or other compensation charged or paid for such
service or product, including money and any other thing of monetary value to be
received by the provider of the service or product, or its affiliate, in
connection with the service or product.

(2)

Service

The
term service means, in connection with a plan, a service provided
directly or indirectly to, or with respect to, the plan or a service provided
directly or indirectly in connection with a financial product in which plan
assets are to be invested.

(3)

Contract

The
term contract means, in connection with any 2 or more parties, any
contract or arrangement entered into between or among such parties, and any
extension or renewal thereof.

(4)

Service
provider

The terms service provider and
provider mean, in connection with a service, a person directly or
indirectly providing such service.

(5)

Regulations

The
Secretary shall provide by regulation definitions of other terms used in this
section.

.

(b)

Quarterly
benefit statements

Section 105 of such Act (29 U.S.C. 1025) is
amended—

(1)

in subsection
(a)(2)—

(A)

by redesignating
subparagraph (C) as subparagraph (H);

(B)

in subparagraph
(B)(ii)—

(i)

in
subclause (II), by striking diversified, and and inserting
diversified,;

(ii)

in
subclause (III), by striking the period and inserting , and;
and

(iii)

by
adding after subclause (III) the following new subclause:

(IV)

with respect to the portion of a
participant’s account for which the participant has the right to direct the
investment of assets, the information described in subparagraph
(C).

;
and

(C)

by inserting after
subparagraph (B) the following new subparagraphs:

(C)

Periodic account
information for participants and beneficiaries

For purposes of subparagraph (B)(ii)(IV),
the information described in this subparagraph consists of the following,
indicating the portion of each amount described in clauses (i) though (vii)
attributable to each investment option elected in connection with the
participant’s account:

(i)

the starting
balance of the participant’s account,

(ii)

contributions
made during the quarter, itemizing separately totals for employer and totals
for employee contributions,

(iii)

investment
earnings or losses on the account balance during the quarter (if any),

(iv)

actual or
estimated charges (within the meaning of section 111(e)(1)) which reduce the
account during the quarter, expressed in dollars or, if estimated, such
estimated dollar charges as derived from an expense ratio (which may be
expressed as a specific date estimate based on the previous year’s expense
ratio),

(v)

any other charges
to the participant or beneficiary in connection with the participant’s
account,

(vi)

the ending
balance of the account,

(vii)

the
participant’s asset allocation to each investment option, including the net
return, expressed as an amount and as a percentage, and

(viii)

how to obtain
the most recently updated version of the plan fee comparison chart prepared for
purposes of section 111(b)(3).

(D)

Other
information

The plan administrator may include in the quarterly
pension benefit statement information relating to the historical return and
risk of each investment option and the estimated amount that the participant
needs to contribute each month or year so as to retire at retirement age (as
defined in section 216(l) of the Social Security Act).

(E)

Estimations

For purposes of making the disclosure of
actual charges or percentages as required under this paragraph, the plan
administrator may provide a reasonable and representative estimate of such
charges or percentages and shall indicate any such estimate as being such an
estimate. Any such estimate shall be based on the previous year’s
experience.

(F)

Model
Statement

The Secretary shall prescribe a model pension benefit
statement that may be used for purposes of satisfying the requirements of this
subparagraph and subparagraph (B)(ii).

(G)

Annual
compliance for small plans and with respect to certain
information

In the case of a plan providing for investment as
described in paragraph (1)(A)(i)—

(i)

if
the plan has 100 or fewer participants and beneficiaries, the plan may provide
the pension benefit statement under paragraph (1) on an annual rather than a
quarterly basis, and

(ii)

the plan may
comply with the requirements of subparagraph (B)(ii)(IV) on an annual rather
than a quarterly basis.

;
and

(2)

by adding at the
end the following new subsections:

(d)

Assistance to
small employers

The Secretary shall make available to employers
with 100 or fewer employees—

(1)

educational and compliance materials
designed to assist such employers in selecting and monitoring service providers
for individual account plans which permit a participant or beneficiary to
exercise control over the assets in the account of the participant or
beneficiary, investment options under such plans, and charges relating to such
options, and

(2)

services designed
to assist such employers in finding and understanding affordable investment
options for such plans and in comparing the investment performance of, and
charges for, such options on an ongoing basis against appropriate benchmarks or
other appropriate measures.

(e)

Assistance to
plan sponsors and plan participants and beneficiaries

The
Secretary shall provide assistance to plan sponsors of individual account plans
and participants and beneficiaries under such plans with any questions or
problems regarding compliance with the requirements of this section.

(f)

Electronic
media

Any disclosure required
under this section may be provided through an electronic medium under rules
prescribed by the Secretary. Such rules shall be similar to those applicable
under the Internal Revenue Code of 1986 with respect to notices to participants
in pension plans. The Secretary shall have the authority to modify such rules
as appropriate to take into account new developments, including new forms of
electronic media. The rules prescribed by the Secretary pursuant to this
subsection shall provide for a method for the typical participant or
beneficiary to obtain without undue burden any such disclosure in writing on
paper in lieu of receipt through an electronic
medium.

.

(c)

Enforcement

Section
502(c)(7) of such Act (29 U.S.C. 1132(c)(7)) is amended—

(1)

by inserting
(A) after (7); and

(2)

by adding at the
end the following new subparagraph:

(B)(i)

In the case of any
violation of section 111(a) by a service provider (as defined in section
111(e)(4)) with respect to one or more participants and beneficiaries, the
service provider shall be assessed by the Secretary a civil penalty of up to
$1,000 a day with respect to each such participant or beneficiary from the date
of the initial violation until the date on which such violation is corrected,
subject to a total maximum penalty of 10 percent of the amount involved.

(ii)

Any plan administrator or other person who
is a service provider with respect to the plan who fails or refuses to provide
a statement to participants and beneficiaries in accordance with section
105(a)(2)(B)(ii) or 111(b) shall be assessed by the Secretary a civil penalty
of up to $100 a day from the date of the failure or refusal to the date on
which such statement or notice is so provided.

(iii)

For purposes of this subparagraph,
each violation with respect to any single participant, beneficiary, or plan
administrator shall be treated as a separate violation. The Secretary may
compromise, modify, or remit any civil penalty imposed on any person under this
subparagraph if the Secretary determines—

(I)

that the person acted reasonably and
in good faith or that severe financial hardship would otherwise occur to the
plan sponsor, and

(II)

that such compromise, modification,
or remission is in the interests of participants and
beneficiaries.

.

(d)

Conforming
amendment

The table of contents in section 1 of such Act, as
amended by section 2, is amended by striking the item relating to section 111
and inserting the following new items:

The amendments made by this section shall apply to contracts
for services entered into in plan years beginning after one year after the date
of the enactment of this Act.

3.

Minimum investment
option requirement for individual account plans

(a)

In
general

Section 404(c) of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104(c)) is amended
by adding at the end the following new paragraph:

(6)

Minimum
investment option requirement for individual account
plans

Paragraph (1)(A)(ii) shall not apply in connection with any
individual account plan which permits a participant or beneficiary to exercise
control over the assets in the account of the participant or beneficiary unless
the plan includes at least one investment option—

(A)

which is an unmanaged or passively managed
mutual fund with a portfolio of securities designed to substantially match the
performance of the entire United States equity market or the entire United
States bond market, or a combination thereof,

(B)

which offers a
combination of historical returns, risk, and charges (within the meaning of
section 111(e)(1)) that is likely to meet retirement income needs at adequate
levels of contribution, and

(C)

which is described
in the terms of the plan as offered without any endorsement of the Government
or the plan
sponsor.

.

(b)

Conforming
amendment

Section 404(c)(1)(A)(ii) of such Act (29 U.S.C.
1104(c)(1)(A)(ii)) is amended by inserting except as provided in section
404(c)(6) and after exercise of control,.

(c)

Effective
date

The amendments made by this section shall apply with respect
to plan years beginning after one year after the date of the enactment of this
Act.

4.

Enforcement
coordination and review by the Department of Labor

(a)

In
general

Section 502 of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1132) is amended by adding at the end the following new
subsection:

(n)

Enforcement
coordination of certain disclosure requirements and review by the Department of
Labor

(1)

In
general

(A)

Notification and
action

The Secretary shall notify the applicable regulatory
authority in any case in which the Secretary determines that a service provider
is engaged in a pattern or practice that precludes compliance by plan
administrators with section 111. The Secretary shall, in consultation with the
applicable authority, take such timely enforcement action under this title as
is necessary to assure that such pattern or practice ceases and desists and
assess any appropriate penalties.

(B)

Dissemination

The
Secretary shall widely disseminate to employee pension benefit plans covered by
this title and their participants and beneficiaries the identity of any service
providers with respect to such plans found to be engaged in any pattern or
practice described in subparagraph (A) with the intent to preclude compliance
by plan administrators with section 111 and the particulars of such pattern or
practice. Prior to the dissemination of the identity of any service providers
identified and determined by the Secretary to be engaged in such a pattern or
practice, such service provider shall receive a notice of intent to
disseminate, an opportunity to request an administrative hearing, and a timely
appeal to the Secretary.

(2)

Annual audit of
representative sampling of individual account plans

The Secretary
shall annually audit a representative sampling of individual account plans
covered by this title to determine compliance with the requirements of section
111. The Secretary shall annually report the results of such audit and any
related recommendations of the Secretary to the Committee on Education and
Labor of the House of Representatives and the Committee on Health, Education,
Labor, and Pensions of the
Senate.

.

(b)

Review and
report to the Congress by Secretary of Labor relating to reporting and
disclosure requirements

(1)

Study

As
soon as practicable after the date of the enactment of this Act, the Secretary
of Labor shall review the reporting and disclosure requirements of part 1 of
subtitle B of title I of the Employee Retirement Income Security Act of 1974
and related provisions of the Pension Protection Act of 2006.

(2)

Report

Not
later than 18 months after the date of the enactment of this Act, the Secretary
of Labor, in consultation with the Secretary of the Treasury, shall make such
recommendations as the Secretary of Labor considers appropriate to the
appropriate committees of the Congress to consolidate, simplify, standardize,
and improve the applicable reporting and disclosure requirements so as to
simplify reporting for employee pension benefit plans and ensure that needed
understandable information is provided to participants and beneficiaries of
such plans.